Banks resume uptrend after a brief pause post RBI repo rate hike

Banking stocks resumed their uptrend after trimming some gains immediately after the RBI policy outcome was announced.

The Bank Nifty and Nifty PSU bank had both trimmed gains on the back of hiking of repo as well as repo rates. The resumption of trend is possible after reading into the fine-print of the central bank’s statement.

The Bank Nifty had given up all of its gains just after the announcement, but is now trading around half a percent higher. Meanwhile, Nifty PSU bank is gaining strength.

The Reserve Bank of India’s Monetary Policy Committee (MPC) has, for the first time in four years, hiked key repo rate by 25 basis points (bps) to 6.25 percent.

The MPC decided to increase it by a quarter percentage point on account of high inflation and firming crude oil prices.

The central bank also hiked the reverse repo rate to 6 percent.

The last time RBI had raised the repo rate was in January 2014, by 25 bps to 8.00 percent. Since then, it has either reduced it or maintained status quo. Repo rate is the rate at which banks borrow from RBI for their short-term funding requirements.